Netflix’s shares fell nearly 3 per cent on Wednesday after the streaming pioneer forecast current-quarter revenue and profit below Wall Street estimates, hit by a delay in the wider roll-out of its solution to password sharing.
The company will now launch paid sharing widely, including in the US, between April and June. It reported a rise in subscriber growth in the first quarter in Canada – one of the markets where it has cracked down on password sharing.
The move is expected to result in some knee-jerk churn and near-term earnings risks but should ultimately pay off, analysts said.
“The next few months will likely be noisy as paid sharing headline risk grows louder, but we’d be buyers of related pullbacks,” JPMorgan analyst Doug Anmuth said.
Here are five charts that explain Netflix’s first quarter:
AVERAGE REVENUE PER MEMBERSHIP
Cowen analyst Mark Mahaney said the average revenue generated per member on the US$6.99 offering with ads was higher than that on the US$15.49 subscription, suggesting Netflix had ramped up revenue generation through ads faster than expected.
The challenge ahead is getting the sign-ups for Netflix’s ad offering, Mahaney noted.
SUBSCRIPTION REVENUE BY REGION
UBS analyst John Hodulik said the Canada numbers gave “increased conviction” that wider password sharing restrictions could provide an over 5 per cent bump to revenue and become “meaningfully accretive” as soon as the third quarter.
SLIDING MARKET SHARE
Netflix’s market share is shrinking as competition heats up. The company had 49.1 per cent of total US OTT subscription revenues in 2018, but will have just 26.3 per cent by the end of 2023, Insider Intelligence predicted.
END OF THE DVD RENTING ERA
Netflix said it is winding down its DVD-by-mail business, ending the service it started around 25 years ago.